A collection of observations, news and resources on the changing nature of innovation, technology, leadership, and other subjects.

March 08, 2017

Automation and Employment in the 21st Century

Ever since the advent of industrialization over 200 years ago, there’ve been periodic fears about the impact of technology-based automation on jobs.In the 1810s, for example, the so-called Luddites smashed the new machines that were threatening their textile jobs.But each time those fears arose in the past, technology advances ended up creating more jobs than they destroyed.

Automation anxieties have understandably accelerated in recent years, as AI-related innovations, including robots and smart machines of all kinds, are now being applied to activities requiring intelligence and cognitive capabilities that not long ago were viewed as the exclusive domain of humans. The concerns surrounding AI’s long term impact on jobs may well be in a class by themselves.

There’s a broad consensus that AI will have a major impact on jobs and the very nature of work, but it’s much less clear what that impact will be.Will AI play out like past technology innovations, - highly disruptive in the near term, but ultimately leading to the creation of new jobs, whole new industries, and a rising standard of living?Or will this time be different, as AI-based innovations end up replacing a large portion of the workforce, - leading to mass unemployment, economic dislocations and social unrest?

In January, the McKinsey Global Institute published A Future that Works: Automation, Employment and Productivity, the results of a two year study of automation technologies and their potential impact on jobs over the next several decades.McKinsey’s comprehensive report, - over 130 pages, - is the most detailed analysis I’ve seen on the subject.The report examines in great detail how things might likely play out over a broad spectrum of possibilities, -from the pessimistic expectations of mass unemployment at one end, to the more optimistic expectations that AI will follow the path of past technology revolutions and be ultimately beneficial.Its overriding conclusion is succinctly captured in this paragraph:

“Many workers will have to change, and we expect business processes to be transformed.However, the scale of shifts in the labor force over many decades that automation technologies can unleash is not without precedent.It is of a similar order of magnitude to the long-term technology-enabled shifts away from agriculture in developed countries’ workforces in the 20th century.Those shifts did not result in long-term mass unemployment, because they were accompanied by the creation of new types of work.We cannot definitively say whether things will be different this time. But our analysis shows that humans will still be needed in the workforce: the total productivity gains we estimate will only come about if people work alongside machines.That in turn will fundamentally alter the workplace, requiring a new degree of cooperation between workers and technology.”

The report explains in great detail the key findings that led to this overall conclusion.I’d like to discuss a few of these findings.

Only a small percentage of occupations can be fully automated by adapting current technologies, but some work activities of almost all occupations could be automated

Most jobs involve a number of different tasks or activities.Some of these activities are more amenable to automation than others.But just because activities have been automated, does not imply that the whole job has disappeared.To the contrary, automating parts of a job will often increase the productivity and quality of workers by complementing their skills with machines and computers, as well as by enabling them to focus on those aspect of the job that most need their attention.

Given that few jobs will be entirely automated, the report focused instead on the kinds of activities within jobs that are more likely to be automated, as well as how those jobs will then be transformed.

“Almost half the activities people are paid almost $16 trillion in wages to do in the global economy have the potential to be automated by adapting currently demonstrated technology, according to our analysis of more than 2,000 work activities across 800 occupations.While less than 5 percent of all occupations can be automated entirely using demonstrated technologies, about 60 percent of all occupations have at least 30 percent of constituent activities that could be automated.More occupations will change than will be automated away…”

“While certain categories of activity, such as processing or collecting data, or performing physical activities and operating machinery in a predictable environment, have a high technical potential for automation, the susceptibility is significantly lower for other activities including interfacing with stakeholders, applying expertise to decision making, planning, and creative tasks, or managing and developing people.”

Automation will not happen overnight, but will likely take decades

The Mckinsey study modeled how various factors will impact the automation adoption.“Our scenarios suggest that half of today’s work activities could be automated by 2055, but this could happen up to 20 years earlier or later depending on the various factors, in addition to other wider economic conditions.”Five key factors will influence the pace and extent of automation.

Technical Feasibility.Technologies have to be invented, integrated, and adapted into solutions that automate specific activities.Machines can already match or outperform humans in many tasks, however, many other capabilities require a lot more technological development.

Cost of developing and deploying solutions.The costs of developing and deploying these solutions will affect the business case for adoption.It’s important to remember that developing and engineering automation technologies takes considerable time and capital.

Labor market dynamics.The supply, demand, and costs of human labor as an alternative to automation will affect which activities will be automated.Labor dynamics will differ by geography, given the widely different demographics and wage rates around the world.

Economic benefits. These include higher throughput and productivity as well as labor cost savings.In addition, factors beyond financial benefits like improved safety and higher quality are sometimes even more important in making the business case for automation.

Regulatory and social acceptance. Even when automation makes business sense, regulatory and social acceptance will affect the rate of adoption.Government policies can significantly slow adoption, as does the need to change organizational processes and practices across the economy.

Automation can boost productivity and help close a GDP growth gap resulting from declining growth rates of working-age populations

According to the McKinsey report, the automation of work activities can make a significant contributions to productivity growth for individuals and businesses, as well as for entire economies where rising productivity is sorely needed.“At a macroeconomic level, based on our scenario modeling, we estimate automation could raise productivity growth on a global basis by as much as 0.8 to 1.4 percent annually.”

In addition, automation is badly needed given demographic changes and the decline in the share of the working-age population in many countries, a major reason for slow economic growth.“While much of the current debate about automation has focused on the potential for mass unemployment, predicated on a surplus of human labor, the world’s economy will actually need every erg of human labor working, in addition to the robots, to overcome demographic aging trends in both developed and developing economies.In other words, a surplus of human labor is much less likely to occur than a deficit of human labor, unless automation is deployed widely.”

Role of policy-makers

“For business, the performance benefits of automation are relatively clear, but the issues are more complicated for policy-makers.They should embrace the opportunity for their economies to benefit from the productivity growth potential and put in place policies to encourage investment and market incentives to encourage continued progress and innovation.At the same time, they must evolve and innovate policies that help workers and institutions adapt to the impact on employment.This will likely include rethinking education and training, income support and safety nets, as well as transition support for those dislocated.Individuals in the workplace will need to engage more comprehensively with machines as part of their everyday activities, and acquire new skills that will be in demand in the new automation age.”

Comments

When viewed at the macro level, the academic and business elite among us make a compelling case for the long term benefits of AI, technology and automation. Conversely, labor views these changes short term and at the micro level: What does it do for me ...to me? In the past few decades productivity growth has accrued mostly to capital and not to labor. I think labor sees only short term (and negative) consequences and not the long term potential for new and more plentiful opportunities. Labor is more apt to counter with Keynes’ expression: “In the long run we are all dead” when confronted with the intellectual argument for the long term benefits of AI, technology, automation, etc. We are living this social disconnect even as we speak.